Global: After rising through 2013, the main business surveys have gone sideways in 2014 and the pace of global growth has slipped slightly. We have lowered our global GDP forecasts for 2014 from 3.4% to 3.2%. In part bad weather in North America explains some of early 2014’s disappointing outcome but the Euro-zone upturn also faltered and Japan’s economy has to digest the April rise in indirect taxes. Despite these headwinds, we expect global growth to quicken to 3.7% in 2015 and 2016 as the US recovers and expansion picks up in long-time under-performing economies like India and the Euro-zone.

After a long period in which the focus of most central banks in the big advanced economies has been on low interest rates and injecting liquidity to stave off deflation, boost growth and repair the consequences of the GFC, we are now entering a period of greater diversity in monetary policy. The Fed is still winding back its asset purchases at a rate that should see them end this year but it is still signalling low interest rates into 2015. The Bank of England recently surprised the markets saying that rate rises could come sooner than generally expected. By contrast, the ECB and the Bank of Japan are focused on ending or avoiding deflation with the former recently loosening policy and the latter continuing its ultra-easy policy as inflation finally starts to rise.

The pace of growth in global industrial output has settled at a moderate pace of around 3¾% yoy since late 2013, a clear improvement on the sub-2% yoy growth rates seen at the start of 2013. This pick-up through 2013 reflected an improvement in conditions in the big advanced economies alongside a slowing trend in the main emerging economies. World trade, on the other hand, has been more volatile with a distinct slowdown since the end of last year. It is too early to sound the alarm bells that shrinking global trade could signal a weakening in output – but the monthly data should now be closely watched in case of ongoing weakness.

Revised US data has magnified the slowdown in G7 advanced economy growth that was recorded in early 2014. Some of the early 2014 weakness should be discounted as it reflected the impact of bad weather and other shocks in North America. Also business surveys have not been as weak as GDP – so business is not sensing a sudden move toward recessionary conditions. Elsewhere conditions are mixed. Euro-zone growth in early 2014 was very disappointing and the business surveys since then have not shown much of an improvement. In fact, recent European Commission and PMI industrial surveys for the Euro-zone have been trending down as ongoing weak conditions in France and Italy weigh on sentiment. However the Belgian central bank’s business survey – a useful guide to conditions across the region – is not showing any collapse in firms’ demand expectations, so things should at least stabilise. Elsewhere, the UK is finally recovering strongly from its deep and protracted downturn and Japanese business is adjusting to the shock to demand caused by the April hike in sales taxes.

The slowing trend in the big emerging economies has continued into 2014 with March quarter growth slipping to 5.4% yoy, down from the 6% yoy recorded in mid-2013. Industrial growth has settled at around 4% yoy since mid 2013 but a couple of soft monthly numbers early this year have cut the trend annualised growth rate to below 3%. Services are the biggest single sector in the emerging market economies and growth there has been gradually trending down for years. Services growth was around 6% yoy in March quarter, well below the over 8% yoy growth rates seen a few years ago. The emerging market slowdown is also widespread with recent monthly data showing China continuing its gradual slowing trend, India still disappointing the optimists and modest outcomes in Latin America and East Asia.

Downward revisions to US March quarter history have flowed into a cut in our 2014 US growth forecasts, but growth should recover next year. The other big downward revision is for Latin America where new data shows Argentinean GDP (the 22nd biggest global economy) fell in early 2014 as the economy faced a new debt crisis. There is also uncertainty surrounding the impact of the World Cup on the recently soft Brazilian economy. Global growth is forecast to quicken from 3.2% this year to 3.7% in both 2014 and 2015, which is around or slightly above the long-run trend. The emerging economies should still account for the bulk of the increase in global output but the contribution from advanced economies should pick-up this year and next as the latter’s growth accelerated from 2013’s 1¾% to 2¾% this year and next. Emerging market growth should remain over 5% as India’s growth finally picks up.